Supporting borrowers in the Real Estate market transition loan agreements.

Update 30/04/20: In the wake of the coronavirus pandemic, the FCA has decided to extend its deadline for ceasing to issue new loans based on LIBOR until the end of Q1 2021. Borrowers with loans extending beyond then should continue to assess their exposure by identifying relevant loans, considering the provisions within them and as necessary engaging with their bank early to resolve any positions where the situation will be commercially unacceptable based on the current drafting of loan agreement.

Following the large-scale LIBOR fixing scandal exposed in 2011, and a general decline in the importance of interbank lending within the financial markets, the Financial Conduct Authority (FCA) has indicated that it wants to move the financial markets away from using LIBOR as a benchmark. The FCA favours risk free rates (RFRs) which are based on actual transaction data and less susceptible to manipulation.

There are differences between RFRs and LIBOR which are significant, especially for the loan market. As a result, in comparison to other markets such as the derivative markets, there has not yet been many transactions referencing RFRs in the loan market.

The fundamental difference is that existing RFRs are based on historical transaction data and so, unlike LIBOR, there is no element of ‘forward looking’ to the expected movements in interest rate market over the interest period built into the rate. The practical and commercial effect of this is that where interest rate payments are referenced to RFRs, such as SONIA, borrowers can expect loans to be offered on terms where the borrower has less notice as to the interest payments that will be due. The reason for this is that RFRs will likely be calculated at or shortly before the date when payment is due, rather than at the beginning of the interest period, as is usual for LIBOR loans. Therefore, it will no longer be clear well in advance what will be payable. Consequently, some market participants have delayed transition plans awaiting the development of a forward looking RFR term rate.

What does this mean for borrowers with new loans?

Borrowers in the real estate market should make sure they understand the financial and practical implications of the interest payment mechanisms and benchmarks proposed.

What does this mean for borrowers with existing loans?

We can advise you on the implications for your contracts which reference LIBOR. We are able to review your contracts to assess the effect that the discontinuance of LIBOR will have on the agreement and to enable you to consider whether the terms are still commercially acceptable or require renegotiation.

For borrowers with extensive financing arrangements we can offer a tailored service to assist with the process of assessing and managing LIBOR transition, working with you to make sure the extent of the risk/exposure for the business is understood in good time and mitigated as effectively and efficiently as possible.

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<div class=wprt-container><p>FCA extends its deadline for ceasing to issue new loans based on LIBOR until the end of Q1 2021</p></div>

FCA extends its deadline for ceasing to issue new loans based on LIBOR until the end of Q1 2021

IMPORTANT UPDATE

In the wake of the coronavirus pandemic, the FCA has decided to extend its deadline for ceasing to issue new loans based on LIBOR until the end of Q1 2021. Banking & financial disputes Partner, Janine Alexander, comments on the implications.

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<div class=wprt-container><p>A Collyer Bristow White Paper  for the Real Estate sector</p></div>

A Collyer Bristow White Paper  for the Real Estate sector

Getting to grips with LIBOR transition and loans

Collyer Bristow surveyed real estate businesses on the steps they are taking to prepare for the end of LIBOR and the introduction of new benchmark reference rates.

Read our latest White Paper for the findings of our research; the differences between LIBOR and risk free rates; the impact on borrowers with new loans; the impact on borrowers with existing loans.; and how Collyer Bristow can help.

Download White Paper

Real Estate sector: Are you prepared to move away from LIBOR?

In March 2020, Collyer Bristow (facilitated by Estates Gazette) surveyed Real Estate businesses on the steps they are taking to prepare for the end of LIBOR and the introduction of new benchmark reference rates.

Download survey results infographic

View our LIBOR transition support Lawyers: